Fundamental analysis is a method of measuring a share/currency’s intrinsic value – it refers to its fundamental value without referring to its market value. Factors affecting the security’s value at both a macro- and micro-economic level would be:
MACRO ECONOMIC FACTORS
Include economic, social and political influences. They are presented at government level and affects a country as a whole.
Economic factors: Economic growth (GDP/CPI/PPI), unemployment rates, exchange rates, inflation rates, interest rates.
Social Factors: Cultural views, health (viruses), population growth rate, age distribution
Political Factors: How a government intervenes in an economy eg Tax policy, labour law, government shutdowns, trade restrictions, tariffs.
MICRO ECONOMIC FACTORS
Include the factors that affect almost any business.
- impact of customers
- availability of employees
- availability of suppliers
- distribution channels and suppliers
- level of competition between businesses
- the effectiveness of the company’s management
- financial statements
These macro- or micro-economic factors highlight whether a specific economy or company’s currency or security is tradable. A trader searches for factors that provide value.
The aim is to arrive at a number that an investor can compare with a security/currency’s current price in order to see whether the security is undervalued or overvalued.
Market sentiment is also a key factor to consider. How traders are feeling and reacting to news affecting the market eg economic reports, can influence prices. One needs to be aware of market sentiment at all times. Learning to use fundamental analysis will help you to understand the reasons behind trends and give you insight into market movements.
Fundamental Analysis (FA) is a method of measuring a security’s intrinsic value by examining related economic and financial factors, put another way,
Fundamental Analysis is a Global conversation that propagates foundational pillars about different countries, their political, economical and social environments which serves investors with information that gives results that lead to profit and potential losses.
The diverse scope of fundamental analysis includes a focus area that must adopt a correct way of interpreting data and applying it for maximum results. Quite similar to personal challenges and processes, one needs to analyse moments, experiences and make calculated decisions so as to become effective.
As a Retail Trader, analysing potential technical setups, you have to consider the Impact fundamental analysis can have because successful traders understand that fundamental analysis can have short, medium and long term impact on the market you choose to trade.
Lastly, think of fundamental analysis as a tool that shows you the heartbeat of the above-mentioned, the weaker the heartbeat, the less likely you are to survive and the stronger the heartbeat, the degree of probability increases in your favour.
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